EXCELLENT INVESTMENT (GROUP) LTD (IN LIQUIDATION) v. SIN YUK LING

HCMP 292/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 292 OF 2017

(ON AN INTENDED APPEAL FROM HCCW NO 294 OF 2012)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.  This is the application of the joint and several liquidators (“JSL”) of Excellent Investment (Group) Limited (“the Company”) for leave to appeal against the decision made by A Chan J on 3 August 2016 (“the Decision”).  The respondent, Sin Yuk Ling, was at all material times the sole director and one of two shareholders of the Company.

2.  By the Decision, the judge made the following orders:

(1) the costs of the Applicant’s [i.e. the Company] Summons[1] incurred up to and including 1 September 2014 be paid by the respondent, and the costs incurred thereafter (including the hearing on 21 April 2015) be borne by the JSL personally;

(2) the costs of the liquidation be borne by the respondent with the exception of those costs which were incurred after 1 September 2014 for the purposes of the Applicant’s Summons.  The excluded liquidation costs be borne by the JSL;

(3) the costs of the Respondent’s Summons[2] be borne by the respondent; and

(4) two-thirds of the hearing before the judge on 3 August 2016 be borne by the JSL.

3.  The JSL have sought leave to challenge (1), (2) and (4) of the above order.  This being an appeal relating only to costs, leave is required pursuant to section 14(3)(e) of the High Court Ordinance, Cap 4.

4.  The judge refused leave to appeal in a decision on 25 January 2017 (“the Leave Decision”).  The JSL renewed their application to this court by a summons issued on 8 February 2017.  The grounds in the draft notice of appeal annexed to that summons are the same as those placed before the judge.

5.  The JSL submitted that although this is an appeal against costs, at issue is the larger question of what the standards of proper conduct required of liquidators are when they conduct litigation to recover company assets, and the proper procedure to be followed when the court considers whether to make an order for personal costs against liquidators.  The JSL requested that the application be dealt with at an oral hearing and indicated they intended to instruct a Senior Counsel to attend.

6.  Having considered the papers and the submissions before us, we are not minded to hold an oral hearing and will exercise our discretion to deal with this on paper under Order 59 rule 2A(5).

The legal principles

7.  Two matters are of note here.  First, the costs orders were made against a non-party.  Second, the non-party are the liquidators and there is an element of public interest in that liquidators should be able to perform their duties without being exposed to personal liability for costs.

8.  The judge did not mention any authorities in this regard in the Decision or the Leave Decision.  Irrespective of whether the parties had cited any of the relevant decisions to him at the hearing on 3 August 2016[3], we have no reason to think that he was unaware of the applicable principles, as, short of nine months before the Decision, the judge had given a detailed judgment on the same issue in Super Speed Ltd (in liquidation) v Bank of Baroda, HCCW 273/2012, in which he reviewed the relevant cases, summarised the legal principles guiding the exercise of the discretion to order costs against a non-party in the speech of Lord Brown of Eaton-under-Heywood in Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] 1 WLR 2807, and quoted the relevant parts of the judgments of two members of the English Court of Appeal[4] in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613.  Importantly, the judge expressed his preference for the approach in Metalloy Supplies (that unreasonable behaviour was not sufficient to ground a non-party costs order against the liquidator and it is necessary to show impropriety or bad faith on his part) to that in Dolphin Quays Developments Ltd v Mills & Ors [2008] 1 WLR 1829 (that impropriety or bad faith is not an essential ingredient, they are merely elements in the exercise of discretion).

9.  A Chan J noted the important public interest consideration not to discourage liquidators from discharging their duties and proceeded on the basis it is necessary to show impropriety or bad faith to make a liquidator personally liable for costs (Super Speed Ltd, at §§31 to 34).

10.  There is no suggestion that he has not adopted the same legal principles in the present case.  Nor do we understand the parties to have argued that he was wrong in law with regard to the principles he sought to apply.  The complaint of the JSL is mainly that no impropriety has been made out on the facts, nor has it been demonstrated that the conduct of the JSL was wholly misconceived or doomed to failure.

11.  Viewed in that light, we do not think the JSL have a reasonable prospect of success in the intended appeal, and in any event would have exercised our residual discretion to refuse to grant leave to appeal.

The grounds of appeal

12.  We have noted the background matters, the evidence contained in affirmations and the correspondence and do not propose to repeat them.

13.  Three broad grounds on appeal were advanced by Ms Janine Cheung on behalf of the JSL. They are as follows:

(1) The judge’s conclusion that the JSL acted improperly was based on wrong findings of fact, without proper consideration of all the relevant facts, and without any facts indicating impropriety on the JSL’s part.  No court could reasonably have concluded that the JSL had acted improperly in the circumstances.

(2) The orders for the JSL to bear costs personally were made without the JSL being made a party to the proceedings.  And the JSL had been joined and penalised with a personal costs order effectively “ex post facto” without being told that they had been joined or given the opportunity to be properly heard.

(3) The court should not have exercised its discretion to order costs against the JSL in the circumstances of the case, there being no bad faith or impropriety established.

Ground (1): erroneous factual findings

14.  The submissions in respect of ground (1) were rejected by the judge who did not agree there were errors in the chronology as related in the Decision[5]. The judge took the view that the errors identified by Ms Cheung are in fact the rival contentions of the JSL as to how the facts should be understood.  Further, he pointed out that the “rival contentions” ignore, inter alia, what happened during the hearing on 15 October 2014 and the outcome of the hearing on 21 April 2015[6].

15.  We have considered the judge’s chronology and Ms Cheung’s chronology, as well as the correspondence adduced.  The facts are not complex or difficult to grasp.  The judge had been seized with the matter for some time. Before he heard arguments on 3 August 2016 which led to the Decision, he had presided at the call-over hearing on 13 August 2014, the adjourned hearing on 15 October 2014, and a further adjourned hearing on 21 April 2015.  He was familiar with how the disputes arose, the stances taken by the JSL and the respondent, and how these all led to the stage when they could not reach agreement and certain parts of the costs had to be adjourned for argument on 3 August 2016.

16.  On the materials before him, the judge expressed surprise to see the case coming back to court after the call-over hearing on 13 August 2014[7]. He found it unreasonable for the JSL to insist on a warranty that the Company did not have any other liability save and except the judgment debt owed to the petitioning creditor and the repayment of the entirety of the dividends in default of various payments in §§3.1 and 4.2 of their proposed Deed of Settlement[8]. He failed to see what useful purpose the insistence on payment of the entirety of the dividends would serve, as it was unlikely for the court to grant such relief, and it thwarted the respondent’s attempts to put an end to the proceedings and stop the wastage of both legal costs and liquidation costs[9].  He further noted it was eight months after the call-over hearing that the JSL finally agreed to abandon the claim to have all the dividends repaid by agreeing to the Consent Order in April 2015[10].  He was extremely critical of the JSL’s conduct, stating in the Decision at §17:

“There is no doubt in my mind that the JSL had acted unreasonably in taking an unrealistic stance in these proceedings. Their repeated failure to accept [the respondent’s] offer to settle these matters means that costs and their fees are continued to be incurred. It appears from the material before the court that the costs incurred for the JSL Summons up to and including 30 June 2014, subject to taxation, were in the sum of HK$256,537. The fees of the JSL up to 31 July 2014 amounted to HK$279,986.70. With respect, these circumstances call into question the propriety of JSL’s position.”

17.  On the materials before him, we consider that the judge is entitled to find impropriety on the JSL’s part.  There is no basis to suggest that the judge’s findings were erroneous or that there was no proper consideration of all the relevant facts.

18.  We reject Ms Cheung’s contention that none of the respondent’s offers to settle were genuine or reasonable.  We could detect no error in the reasonably broad brush approach taken by the judge on costs arguments and that it was not necessary to resolve technical issues concerning sections 275 and 276 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32[11].

19.  As for Ms Cheung’s submission that the JSL had even offered in February 2015 and April 2015 to waive all their costs going forward if the respondent had agreed to settle, there is nothing in these offers as they were made on the basis of the respondent accepting the counter-offer of the JSL, namely, the terms in their proposed Deed of Settlement.

20.  We see no merit in this ground.

Ground (2): lack of procedural fairness regarding joinder

21.  In the draft grounds of appeal, the gravamen of the complaint is that the order was made for the JSL to bear costs personally without them being made a party to the proceedings.  It was premised on the basis there was no application by the respondent for an order for the JSL to bear costs personally (save in the oral statement of the respondent’s counsel at the invitation of the judge at the outset of the hearing on 3 August 2016); no application for joinder under section 52A(2) of the High Court Ordinance, Cap 4; no application and no order made under Order 62 rule 6A.

22.  The judge rejected these contentions as “disingenuous”, for the reasons he gave in §5 of the Leave Decision.  He further stated in §6 why it is unreal to suggest that the JSL were somehow surprised by an application for costs against them.  We are inclined to agree with the judge.

23.  In the application before us, Ms Cheung appeared to have changed the focus of her argument.  She would now seem to accept that the JSL were joined when the judge made the costs orders on 3 August 2016.  Her present complaint is that there was a “clear lack of procedural fairness” in that the judge did not indicate during the hearing that the JSL had been joined for the purpose of considering whether a personal costs order ought to be made against them, nor did he invite the JSL to make submissions in response and specifically address him on a personal costs order.

24.  It was noted in §4 of the Decision that at the hearing, counsel for the respondent “has confirmed” that the respondent “is seeking an order that the JSL should pay the costs of and occasioned by the JSL Summons which have been incurred from and including 1 July 2014, as well as the costs of [the respondent’s] Summons.”  The judge took the view that it is “reasonably clear” from the skeleton arguments filed by the parties, though not explicitly stated, that the arguments are concerned with the personal liabilities of the JSL[12]. We think that must have been apparent, because if the costs were to be borne by the Company instead of the JSL personally, as Ms Cheung has accepted before the judge, such a costs order would have to be paid by the respondent ultimately[13]. The judge also noted that apparently at least one of the JSL was present during most of the hearings of these matters, including the hearing on 3 August 2016, and no issue had been taken on the fact that the JSL had not been joined as a party.  He indicated he would have allowed such a joinder if the point were taken[14].

25.  In light of the above, we do not think the complaints of procedural unfairness are justified.

Ground (3): exercise of discretion

26.  This ground sought to challenge the exercise of discretion of the judge.  On well established principles, we see no basis to interfere with the exercise of discretion.  On the facts found by the judge, applying the legal principles mentioned in the earlier part of the judgment, it could not be said that the judge’s costs order was wrong in principle, or that he failed to exercise the discretion, or did not exercise it judicially.

Conclusion and order

27.  We dismiss the application of the JSL for leave to appeal to the Court of Appeal.  We make a further order under Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

28.  We make an order nisi that the JSL should pay the costs of the respondent of this application.  Having considered the statement of costs for summary assessment of the respondent, and bearing in mind that the same grounds of appeal are relied on as before the judge with the same legal team acting for the respondent, we will reduce the amount claimed to $40,493.

29.  Any party who seeks to vary the costs order nisi or the gross sum assessment shall lodge a written submission within seven days hereof, failing which the order shall become absolute.